CLC Hippocampus Ventures

Three Reasons why Corporate Innovation rarely works from the Inside Alone

The rise of technology and digital offerings has gradually shifted the market power from the sellers to the consumers in the last decade in many industry verticals. Thus new technology enabled entrants in these verticals enter markets by offering easier, faster, cheaper, and more transparent and more user-friendly products and services. Already existing Corporates in these verticals try to imitate these strategies and open up themselves to these new business opportunities, however it is almost impossible to sustain and grow an existing business model during the day and then think about changing it and replacing it with something better, different or new during the evening. Corporate innovation hardly ever works from the inside alone and ideas developed in internal workgroups in most cases are a mere improvement of an existing business model. There are three key reasons for that from our experience:

1. Poor management decision making by relying on the skills of one’s own internal experts

When someone is an expert in an industry he or she is really good at something specific. For a Corporate, such a specialization represents a very welcomed market entry barrier against any possible competitors, but the expert knowledge that makes up the value of an expert meanwhile ages extremely quickly due to the development in technology. As a result, a Corporate is locked-in to its existing business model on the grounds of its own in-depth, and narrow-scope developed expertise, with this behavior being propagated by on-boarding new hires with equally significantly deep vertical expertise.

2. Restricting employee freedom due to company size

The larger a company grows the more it restricts its employees’ freedoms, with very limited examples of large Corporates that intentionally try to assist and motivate employees to think and act differently. Unfortunately, together with the size of a company grows the complexity of day-to-day operations and in order to avoid organizational chaos, Corporates replace creativity by processes. For some time depending on the industry vertical and its size a Corporate will remain successful, since it has little new to think of, will make few mistakes, and is generally speaking efficient in its daily operation. The fact that employees who think out of the box are leaving the company will not bother anyone at first. However, if the external environment changes a range of difficulties will emerge and a Corporate is suddenly no longer able to react correctly and usually sticks to its old, tried-and-tested but no longer helpful ways of responding to tomorrows’ challenges by giving yesterday’s answers.

3. Challenging the organizational norm with a start-up integration

Integrating a newly acquired start-up into an internal department will lead in a situation where the startup is quickly engulfed by internal unrest from those in charge of the preexisting business segments. The new employees are post acquisition fully exposed to Corporate policies, long approval times and notorious naysayers. The worst usually happens when the start-up wants to live up to its new role as a Group subsidiary, since the more it tries to comply with the rules of the Group the more it tends to neglect its own business. If, as a consequence, the newly integrated startup small sales figures in comparison with the total Group sales figures continues to drop, the Group rapidly loses interest in the startup and employees feel alienated and jump ship.

Corporate innovation is a journey and a mindset that emerge from trials, errors, from taking wrong directions and from continuously responding to environment changes. The pains associated with a change of mindset and developing capabilities must be accepted at the CxO level first and then by the rest of the company and external know-how always helps to address the key questions around this journey:

How do we invest into our own cannibalization in order to end up stronger?